Isoelastic elasticity of substitution Production Functions

• Autorzy: Jakub Growiec , Jakub Mućk
• Języki publikacji: EN

Abstrakty

EN

We generalize the normalized Constant Elasticity of Substitution (CES) production function by allowing the elasticity of substitution to vary isoelastically with (i) relative factor shares, (ii) marginal rates of substitution, (iii) capital-labor ratios, or (iv) capital-output ratios. Ensuing four variants of Isoelastic Elasticity of Substitution (IEES) production functions have a range of intuitively desirable properties and yield empirically testable predictions for the functional relationship between relative factor shares and (raw or technology-adjusted) capital-labor ratios. As an empirical application, the parameters of IEES functions are estimated in a three-equation supply-side system with factor-augmenting technical change, based on data on aggregate production in the post-war US economy. Our estimates consistently imply that the elasticity of substitution between capital and labor has remained relatively stable, at about 0.8-0.9, from 1948 to the 1980s, followed by a period of secular decline. (original abstract)

Słowa kluczowe

PL

Funkcja produkcji; Czynniki produkcji; Normalizacja; Elastyczność substytucji; Krańcowa stopa substytucji

EN

Production function; Production factors; Normalization; Elasticity of substitution; Marginal rate of substitution

• Czasopismo: Collegium of Economic Analysis SGH - Working Papers
• Rocznik: 2016
• Numer: nr 1
• Strony: 44

Twórcy

autor

Jakub Growiec

• Warsaw School of Economics, Poland; National Bank of Poland

autor

Jakub Mućk

• Warsaw School of Economics, Poland; National Bank of Poland

Bibliografia

• Acemoglu D. (2003): Labor-and Capital-Augmenting Technical Change, "Journal of the European Economic Association", 1, 1-37.
• Acemoglu D., P. Restrepo (2015): The Race Between Man and Machine: Implications of Technology for Growth, Factor Shares and Employment, Working Paper, MIT.
• Antony, J. (2010): A Class of Changing Elasticity of Substitution Production Functions, "Journal of Economics", 100, 165-183.
• Antràs P. (2004): Is the U.S. Aggregate Production Function Cobb-Douglas? New Estimates of the Elasticity of Substitution, "Contributions to Macroeconomics", 4.
• Arrow K., H. B. Chenery, B. S. Minhas, R. M. Solow (1961): Capital-Labor Substitution and Economic Efficiency, "Review of Economics and Statistics", 43, 225-250.
• Blackorby C., R.R. Russell (1989): Will the Real Elasticity of Substitution Please Stand Up? (A Comparison of the Allen/Uzawa and Morishima Elasticities),"American Economic Review", 79, 882-888.
• Bretschger L., S. Smulders (2012): Sustainability and Substitution of Exhaustible Natural Resources: How Structural Change Affects Long-Term R&D Investments, "Journal of Economic Dynamics and Control", 36, 536-549.
• Caselli F., W. J. Coleman (2006): The World Technology Frontier, "American Economic Review", 96, 499-522.
• Chirinko R. S. (2008): s: The Long and Short of It," Journal of Macroeconomics, 30, 671-686.
• Christensen L. R., D. W. Jorgenson, L. J. Lau (1973): Transcendental Logarithmic Production Frontiers, "Review of Economics and Statistics", 55, 29-45.
• Dasgupta P. S., G. M. Heal (1979): Economic Theory and Exhaustible Resources, Cambridge University Press.
• De la Grandville, O. (1989): In Quest of the Slutsky Diamond, "American Economic Review", 79, 468-481.
• Duffy J., C. Papageorgiou (2000): The Specification of the Aggregate Production Function: A Cross-Country Empirical Investigation, "Journal of Economic Growth", 5, 83-116.
• Duffy J., C. Papageorgiou, F. Perez-Sebastian (2004): Capital-Skill Complementarity? Evidence from a Panel of Countries, "The Review of Economics and Statistics", 86(1), 327-344.
• Elsby M., B. Hobijn, A. Sahin (2013): The Decline of the U.S. Labor Share, "Brookings Papers on Economic Activity", 47(2 (Fall)), 1-63.
• Fernald J. (2012): A quarterly, utilization-adjusted series on total factor productivity, "Working Paper Series 2012-19, Federal Reserve Bank of San Francisco".
• Geary R. C. (1949-50): A Note on 'A Constant Utility Index of the Cost of Living', "Review of Economic Studies", 18, 65-66.
• Gorman W. M. (1965): Production Functions in which the Elasticities of Substitution Stand in Fixed Proportions to Each Other, "Review of Economic Studies", 32, 217-224.
• Growiec J. (2008): A New Class of Production Functions and an Argument Against Purely Labor-Augmenting Technical Change, "International Journal of Economic Theory", 4, 483-502.
• Growiec J. (2008): Production Functions and Distributions of Unit Factor Productivities: Uncovering the Link, "Economics Letters", 101, 87-90.
• Growiec J. (2013): A Microfoundation for Normalized CES Production Functions with Factor-Augmenting Technical Change," Journal of Economic Dynamics and Control, 37, 2336-2350.
• Hanoch G. (1971): CRESH Production Functions," Econometrica, 39, 695-712.
• Irmen A. (2011): Steady-State Growth and the Elasticity of Substitution," Journal of Economic Dynamics and Control, 35, 1215-1228.
• Jones C. I. (2005): The Shape of Production Functions and the Direction of Technical Change," Quarterly Journal of Economics, 120, 517-549.
• Jones L. E., R. E. Manuelli (1990): A Convex Model of Equilibrium Growth: Theory and Policy Implications, "Journal of Political Economy", 98, 1008-1038.
• Kadiyala K. R. (1972): Production Functions and Elasticity of Substitution, "Southern Economic Journal", 38, 281-284.
• Karabarbounis L., B. Neiman (2014): The Global Decline of the Labor Share, "Quarterly Journal of Economics", 129(1), 61-103.
• Karagiannis, G., T. Palivos, C. Papageorgiou (2005): A Variable Elasticity of Substitution (VES) Aggregate Production Function: Theory and Evidence, in: New Trends in Macroeconomics, ed. by C. Diebolt, C. Kyrtsou. Springer Verlag, New York, NY.
• Kim H. Y. (1992): The Translog Production Function and Variable Returns to Scale, "Review of Economics and Statistics", 74, 546-552.
• Klenow P. J., A. Rodriguez-Clare (1997): The Neoclassical Revival in Growth Economics: Has It Gone Too Far? in: NBER Macroeconomics Annual 1997, eds.: B. Bernanke, J. Rotemberg. MIT Press.
• Klump R., O. De La Grandville (2000): Economic Growth and the Elasticity of Substitution: Two Theorems and Some Suggestions, "American Economic Review", 90, 282-291.
• Klump R., P. Mcadam, A. Willman (2007): Factor Substitution and Factor Augmenting Technical Progress in the US: A Normalized Supply-Side System Approach,"Review of Economics and Statistics", 89, 183-192.
• Klump R., P. Mcadam, A. Willman (2012): Normalization in CES Production Functions: Theory and Empirics, "Journal of Economic Surveys", 26, 769-799.
• Krusell P., L. E. Ohanian, J.-V. Ríos-Rull, G. L. Violante (2000): Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis, "Econometrica", 68, 1029-1054.
• León-Ledesma M. A., P. McAdam, A. Willman (2010): Identifying the Elasticity of Substitution with Biased Technical Change, "American Economic Review", 100, 1330-1357.
• Leon-Ledesma M. A., M. Satchi (2015): Appropriate Technology and the Labour Share," Studies in Economics 1505, Department of Economics, University of Kent.
• Lu Y.-C. (1967): Variable Elasticity of Substitution Production Functions, Technical Change and Factor Shares. Iowa State University, Ph.D. Thesis.
• Madsen J. B. (2010): The Anatomy of Growth in the OECD Since 1870, "Journal of Monetary Economics", 57(6), 753-767.
• Mallick D. (2012): The Role of the Elasticity of Substitution in Economic Growth: A Cross-Country Investigation, "Labour Economics", 19, 682-694.
• Matveenko A., V. Matveenko (2015): Technological Choice Generating Normalized CES Production Functions,"Working Paper, CERGE-EI, Prague.
• Mcadam P., A. Willman (2013): Technology, Utilization, and Inflation: What Drives the New Keynesian Phillips Curve? "Journal of Money, Credit and Banking", 45(8), 1547-1579.
• Mishra S. K. (2010): A Brief History of Production Functions, "IUP Journal of Managerial Economics", 4, 6-34.
• Miyagiwa K., C. Papageorgiou (2007): Endogenous Aggregate Elasticity of Substitution, "Journal of Economic Dynamics and Control", 31, 2899-2919.
• Mućk J., P. Mcadam, J. Growiec (2015): Will the True Labor Share Stand Up? "Working Paper, 1806, European Central Bank".
• Oberfield E., D. Raval (2014): Micro Data and Macro Technology," Working Paper 20452, National Bureau of Economic Research".
• Palivos T., G. Karagiannis (2010): The Elasticity of Substitution as an Engine of Growth, "Macroeconomic Dynamics", 14(05), 617-628.
• Papageorgiou C., M. Saam (2008): Two-level CES Production Technology in the Solow and Diamond Growth Models, "Scandinavian Journal of Economics", 110, 119-143.
• Piketty T. (2014): Capital in the Twenty-First Century, translated from French by Arthur Goldhammer, Harvard University Press.
• Piketty T., G. Zucman (2014): Capital is Back: Wealth-Income Ratios in Rich Countries 1700-2010, "Quarterly Journal of Economics", 129(3), 1255-1310.
• Revankar N. S. (1971): A Class of Variable Elasticity of Substitution Production Functions, "Econometrica", 39, 61-71.
• Rognlie M. (2015): Deciphering the Fall and Rise in the Net Capital Share, "Conference draft, Spring 2015 Brookings Panel on Economic Activity".
• Saam M. (2008): Openness to Trade as a Determinant of the Macroeconomic Elasticity of Substitution, "Journal of Macroeconomics", 30, 691-702.
• Sato R., R. F. Hoffman (1968): Production Functions with Variable Elasticity of Factor Substitution: Some Analysis and Testing, "Review of Economics and Statistics", 50, 453-460.
• Smulders S., M. De Nooij (2003): The Impact of Energy Conservation on Technology and Economic Growth, "Resource and Energy Economics", 25, 59-79.
• Solow R. M. (1956): A Contribution to the Theory of Economic Growth, "Quarterly Journal of Economics", 70, 65-94.
• Stone J. R. N. (1954): Linear Expenditure Systems and Demand Analysis: An Application to the Pattern of British Demand, "Economic Journal", pp. 511-527.
• Xue J., C. K. YIP (2013): Aggregate Elasticity of Substitution and Economic Growth: A Synthesis, "Journal of Macroeconomics", 38, 60-75.
• Young A. T. (2013): U.S. Elasticities Of Substitution And Factor Augmentation At The Industry Level, "Macroeconomic Dynamics", 17(04), 861-897.